Do banks want to profit from foreclosures?

[Joe Splitrock]

I am looking at investing in a bank owned property. It was last sold two years ago for around $150K and they were trying to sell it for $185K. The house is beat up and the appliances are all gone including the dishwasher and range hood. Clearly the house is not in prime condition like it probably was two years ago when it sold for $150K. I am assuming the bank loan was less than $150K. The agent told me the bank just wanted to get out the money they had in it. I questioned how they could have more than $150K into it and he just said market appreciation. Our market may have gone up around 8% in two years, but with the condition and missing appliances, I cannot get to their listing number. Is it is common for banks to try to profit from foreclosures? If I submit an offer is there anything I can do to increase the likelihood they will accept my offer? I am thinking of sending a cover letter detailing what I think the value is in current condition. Would that help the bank rationalize my offer as fair? If my offer is higher than what they are owed, are they likely to take it or are banks using foreclosures as an income stream?

[Joe DiGirolamo]

@Joe Splitrock - I find that agents answer to be a bit odd "the bank, just wants to get what they have into it." Actually sounds like total BS to me! There are other costs but like @Patrick L. said they are irrelevant. The value of the property is all that matters. Banks are in the business of loaning money not selling property. I would say it is uncommon for them to try and make money off a foreclosure. A large portion of foreclosures are failed short sales (the bank taking a loss) In that case, the loan amount exceeds the value of the home and that's before all the appliances are ripped out or any other damage is done. Banks want it off the books, minimising liability; that's why they sell. Many REO's are not owned by the original lender, the loan may have been sold several times. Many times bad debt is packaged up and sold off in bulk for pennies on the dollar to companies who specialize in buying non-performing loans, foreclosing and then selling the property.

As for your offer, here is what I would do. First and foremost, I would let the listing agent represent me as the buyer, even though I'm full time agent. Typically the banks give more commission to the buyer's agent than the listing agent. It is in the agents' best interest to sell to his own buyer. You have a better shot of getting the deal if the agent knows he has both sides. Basically, when doing a deal I focus on the profit not the commission. You will also be more likely to have deals sent your way in the future. I would also put the offer in with no inspection and as little contingencies as possible. Buyer to pay for all municipal certs and inspection (typically already mentioned in the listing). You can always do the inspection anyway and still cancel the contract for another reason. Cash and a quick close is a HUGE factor to likely land you the deal. EVEN IF there is another buyer offering more money, with a mortgage contingency. Asset managers want that property off the books ASAP (I have heard this is a factor in performance reviews and bonuses). One other thing you can do to both save money and possibly make your offer stronger is use the title company of the sellers' choice. Banks/REO asset management companies will typically pick up a portion of the title charge on the buyers side if you use their company.

Hope this is helpful!

Happy Investing!